AGM day today. A slightly overlooked stock. Hopefully Inderes will also take this under analysis.
In Kauppalehti:
In connection with the listing, the bank stated that it gains about a thousand new customer relationships per month. Oma Säästöpankki has 40 branches.
Danske Bank states in its stock analysis (Jan 10) that Oma Säästöpankki is “probably the fastest-growing bank in the Nordics.”
Danske Bank predicts that OmaSp’s net profit will grow at a rate of 20 percent for the years 2018-2021. Danske recommends buying OmaSp shares and gives it a target price of 8.80 euros.
“The bank’s profit growth rate is almost twice as fast as that of any other listed Nordic bank,” Danske states in the analysis.
OmaSP and Nordea are in different leagues. Of course, you can compare the cost/income ratio, etc., but OmaSP’s old-fashioned business model will become challenging as digitalization continues to advance.
But it’s good that they maintain branches so that services are also available in the periphery. Good luck to them.
As an investment, it’s probably not the worst, though it is cemented in the ownership of the Savings Bank Foundation, so this is not a pure listed company.
Oma Säästöpankki Oyj’s Interim Report 1 January–31 March 2019: Business volumes and profit in strong growth
CEO Pasi Sydänlammi:
An excellent start to the year
An excellent customer experience boosted our profitable growth in the first quarter of 2019. This was reflected in the growth of both business volumes and profit. Of our main sources of business income, net interest income grew by 17.3% and net commission income grew by 5.1% compared to the reference period. Total business income was boosted by one-off items from net income from financial assets and liabilities from the valuation of the ownership interest in Oy Samlink Ab at fair value, as well as from the dividend. As a result, our profit before taxes grew by a staggering EUR 7.2 million and was EUR 11.9 (4.7) million. Our comparable profit also grew strongly by 15.3%, amounting to EUR 5.2 (4.5) million.
Our deposit base grew excellently during the beginning of the year, which partly enabled the growth of the loan portfolio. Our loan portfolio grew by approximately EUR 100 million and was EUR 2.6 (2.5) billion at the end of March. Demand for both housing loans and corporate loans remained strong throughout the beginning of the year. Our housing loan portfolio grew by 4.16% during the first quarter. New housing loans amounting to EUR 49.6 million were granted during the beginning of the year, and our housing loan portfolio was EUR 1.24 (1.19) billion at the end of March. The growth of the corporate loan portfolio was also well underway, at 3.98%. New corporate loans amounting to EUR 33.5 million were granted, and the corporate loan portfolio was EUR 874.6 (841.2) million at the end of March.
I’ve been buying this company in small increments after the Q3 report. In my opinion, it’s a bit like Ålandsbanken, having flown under the market’s radar despite excellent business development. The stock price is 8.76 at the time of writing, meaning that with this year’s guidance, the adjusted P/E would be around 10-11 and P/B approximately 0.8.
A special feature of this case, however, is its growth orientation and track record of achieving it. Financial targets:
Currently, at the end of Q3, the year’s ROE is still only 7.8% and solvency (CET1) is 17.4%, meaning there is room for growth. At the current price, I believe next year’s growth prospects are almost free.
In addition to the usual risks of the banking sector, I see:
Poor liquidity: 3/4 of the shares are held by various associations (mainly savings bank associations) and some of the rest by pension insurance companies. Only 10-20% of all shares are freely traded on the market.
I wonder if Nordea’s goals to increase ROE% could dramatically intensify competition for loans, significantly impacting competitors?
Comments? Thoughts from those who have followed the story perhaps longer?
The cost/income ratio has developed well, and if it stays at the current level, it should be reflected in the bottom line.
The loan portfolio has grown steadily, which is a good thing. Increased credit losses in the last two quarters have significantly impacted the result. However, the amount of final credit losses has been clearly smaller, which leads to some speculation about future developments. In a good scenario, those customers will manage their debts, and that would have a quite significant impact on the results.
The number of offices will not be touched (costs will not increase)
IT investments will continue.
I estimate that costs will remain roughly the same.
I also looked at the amount of credit losses and thought that competition/growth probably reflects on this. Compared to Ålandsbanken, credit losses are significantly higher in relation to the loan portfolio and net interest income. I don’t know if Swedish-speaking Finns are better payers of loans.
On the other hand, the realization of just a few larger cases could also negatively affect this key figure, as the number of credit losses is still very small.
E: I made my own comparison against ÅAB as my own investment decision was mainly between these two, and I remembered the key figures from there better.
The growth of risk-weighted assets cannot remain at the same level (15.2%) if the aim is to stay above the minimum target level (16%). Return on equity should be higher. The growth target is 10-15%, and the core capital ratio is at least 16%. Doesn’t this limit long-term growth to around 6% at least, if it’s meant to be achieved by increasing lending? The problem, however, can be solved quite easily by lowering the minimum target level.
“Oma Säästöpankki Group’s solvency ratio (TC)
remained strong at 18.0 (19.3)% at the end of the period. The Common Equity Tier 1 (CET1) ratio to risk-weighted assets was 17.4 (18.4)%, clearly exceeding the company’s board-approved financial target minimum level of 16%. Risk-weighted assets of EUR 1,725.9 (1,498.7) million increased by 15.2% from the comparative period, partly weakening the Group’s solvency position. The most significant factors increasing risk-weighted assets were the strong growth in the loan portfolios of private and corporate customers, as well as investments in investment funds.”
Yeah, they nicely announced that they were merging branches, though it was unnecessary to have them so close together in small villages. With the notice periods, they’ve also hired new staff for their lavish new branch in Seinäjoki…
The Seinäjoki branch is apparently so expensive that it’s somewhat like Kamux building its first marble palace for used cars…
I spent the Christmas holidays in Seinäjoki and snapped a quick pic of the new office. It’s a 9-story commercial and residential building right on Seinäjoki’s market square. OmaSp’s previous office was in the exact same spot before OmaSp and Elite decided to demolish the complex.
Well, great that the house is now finished, it’s probably been built like Iisakin’s church… Hopefully, the new fine office building will attract new customers, even if chat customers won’t see it… Just got news from Yle that banking is digitizing at an astounding pace, the era of marble behemoths is over…
Equity is now 317 million. In two years, it could grow by 8% per year, reaching 370 million. At that point, the target return of 10% on equity would be 37 million.
With a valuation of PE 9, 10 or 11, the share price increase from the current 9 euros would be:
PE 9 25%
PE 10 39%
PE 11 53%
Annual return would be:
PE 9 12%
PE 10 18%
PE 11 24%
On the other hand, I just applied for an investment property loan and Nordea crushed OmaSP’s offer. I asked the customer service representative how this was possible and how OmaSP intended to compete, and the answer was with service and a branch network.
Go figure, I can’t say if that’s a competitive advantage if it’s otherwise expensive?
